This chapter presents the estimates and measures of trust fund financial adequacy for the short-range period (2019 through 2028) first, followed by estimates and measures of actuarial status for the long-range period (2019 through 2093). Summary measures are also provided for trust fund status over the infinite horizon. As described in chapter II of this report, these estimates depend upon a broad set of demographic,economic, and programmatic factors. This chapter presents estimates under three sets of assumptions to show a wide range of possible outcomes, because assumptions related to these factors are subject to uncertainty. The intermediate set of assumptions, designated as alternative II, reflects the Trustees’ best estimate of future experience; the low-cost alternative I is significantly more optimistic and the high-cost alternative III is significantly more pessimistic for the trust funds’ future financial outlook. The tables of this report show the intermediate estimates first, followed by the low-cost and high-cost estimates. Chapter V describes these three sets of assumptions, along with the actuarial methods used to produce the estimates. Appendix D and appendix E present two additional methods to illustrate the uncertainty of the projections. Appendix D presents sensitivity analyses of the effects of variation in individual factors and appendix E presents probability distributions generated by a stochastic model.

The Trustees consider the trust funds to be solvent at any point in time if the funds can pay scheduled benefits in full on a timely basis. A standard measure for assessing solvency is the "trust fund ratio,” which is the reserves in a fund at the beginning of a year (not including advance tax transfers) expressed as a percentage of the cost during the year. A positive trust fund ratio indicates that the trust fund was solvent at the end of the prior year. The trust fund ratio represents the proportion of a year’s cost which the reserves available at the beginning of that year can cover. The Trustees assume that a trust fund ratio of 100 percent of annual program cost provides a reasonable “contingency reserve.” Maintaining a reasonable contingency reserve is important because the trust funds do not have borrowing authority. After reserves are depleted, the trust funds would be unable to pay scheduled benefits in full on a timely basis if annual revenue were less than annual cost. Unexpected events, such as severe economic recessions, can quickly diminish reserves. In such cases, a reasonable contingency reserve can maintain the ability to pay scheduled benefits while giving lawmakers time to address possible changes to the program.

The test of short-range financial adequacy applies to the OASI and DI Trust Funds individually and combined on a hypothetical basis.1 If the estimated trust fund ratio is at least 100 percent at the beginning of the projection period, the test requires that it remain at or above 100 percent throughout the 10-year period. If the ratio is initially less than 100 percent, then it must reach at least 100 percent within 5 years (without reserve depletion at any time during this period) and then remain at or above 100 percent throughout the remainder of the 10-year period. This test is applied using the estimates based on the intermediate assumptions. If either trust fund fails this test, then program solvency in the next 10 years is in question, and lawmakers should take prompt action to improve short-range financial adequacy.

Estimates of the OASI Trust Fund operations presented in table IV.A1 indicate that the asset reserves of the OASI Trust Fund are projected to decrease in all years after 2019 under the intermediate assumptions, increase in all years after 2018 under the low-cost assumptions, and decrease in all years through 2028 under the high-cost assumptions. Trust fund ratios decline throughout the 10-year projection period under all three sets of assumptions. Based on the intermediate assumptions, the reserves of the OASI Trust Fund continue to exceed 100 percent of annual cost through 2028. Consequently, the OASI Trust Fund satisfies the test of short-range financial adequacy. See figure IV.A1 for an illustration of these results.

Table IV.A1.—Operations of the OASI Trust Fund, Calendar Years 2014-2028 a

Includes reimbursements from the General Fund of the Treasury to the OASI Trust Fund for: (1) the cost of payroll tax credits provided to employees in 1984 and self-employed persons in 1984-89 by Public Law 98-21; (2) the cost in 2009-17 of excluding certain self-employment earnings from SECA taxes under Public Law 110-246; and (3) payroll tax revenue forgone under the provisions of Public Laws 111-147, 111-312, 112-78, and 112-96.

The estimated income shown in table IV.A1 increases annually under each set of assumptions throughout the short-range projection period. The estimated increases in income result primarily from the projected increases in OASDI taxable payroll. Employment increases in every year through 2028 for all three alternatives, with the exception of small decreases in covered employment in 2021 for the high-cost alternative: the number of covered workers increases under alternatives I, II, and III from 176 million during calendar year 2018 to about 190 million, 186 million, and 182 million, respectively, in 20283. The total annual amount of taxable payroll increases in every year through 2028 for each alternative. Total taxable payroll increases from $7,262 billion in 2018 to $13,639 billion, $11,591 billion, and $9,865 billion in 2028, on the basis of alternatives I, II, and III, respectively.4 These increases in taxable payroll are due primarily to: (1) projected increases in employment levels as the working age population increases; (2) trend increases in average earnings in covered employment (reflecting both real growth and price inflation); (3) increases in the contribution and benefit base under the automatic-adjustment provisions; and (4) growth in employment and average earnings, temporarily higher than trend, as the economy continues to recover from the severe economic downturn that began in late 2007.

Rising OASI cost from 2018 through 2028 reflects automatic benefit increases as well as the upward trend in the number of beneficiaries and in the average monthly earnings underlying benefits. The steady growth in the number of OASI beneficiaries in the past and the expected future growth result both from the increase in the aged population and from the increase in the proportion of the population that is eligible for benefits.

The Treasury invests OASI income in financial securities, generally special public-debt obligations of the U.S. Government. The revenue used to make these purchases flows to the General Fund of the Treasury. The trust fund earns interest on these securities, and the Treasury invests the proceeds from maturing securities in new securities if not immediately needed to pay program costs. Program expenditures require the redemption of trust fund securities, generally prior to maturity, to cover the payments made by the General Fund of the Treasury on behalf of the trust fund.5

Table IV.A2 shows the estimated operations and financial status of the DI Trust Fund during calendar years 2019 through 2028 under the three sets of assumptions, together with values for actual experience during 2014 through 2018. Non-interest income for DI was much higher in 2016 through 2018 than in 2015, due to the temporary payroll tax rate reallocation from OASI to DI in these years. For 2019, non-interest income is less than DI cost. Non-interest income increases steadily thereafter under each alternative, with the exception of a small decrease in 2020 under the high-cost assumptions, due to most of the same factors described previously for the OASI Trust Fund beginning on page 42. DI cost grows steadily throughout the period under each alternative. Under the intermediate assumptions, reserves decline through 2020, then increase through 2028. Under the high-cost assumptions, DI reserves decline after 2018 until depletion in the first quarter of 2025. Under the low-cost assumptions, reserves increase throughout the short-range projection period except for a small decrease in 2019.

Includes reimbursements from the General Fund of the Treasury to the DI Trust Fund for: (1) the cost of payroll tax credits provided to employees in 1984 and self-employed persons in 1984-89 by Public Law 98-21; (2) the cost in 2009-17 of excluding certain self-employment earnings from SECA taxes under Public Law 110‑246; and (3) payroll tax revenue forgone under the provisions of Public Laws 111-147, 111-312, 112-78, and 112-96.

Table IV.A3 shows the estimated operations and status of the combined OASI and DI Trust Funds for calendar years 2019 through 2028 under the three alternatives, together with actual experience in 2014 through 2018. Income and cost for the OASI Trust Fund represent over 80 percent of the corresponding amounts for the combined OASI and DI Trust Funds. Therefore, based on the relative strength of the OASI Trust Fund over the next 10 years, the combined OASI and DI Trust Funds would have sufficient financial resources to pay all scheduled benefits through the end of the short-range period, although it is important to note that under current law, one trust fund cannot share financial resources with another trust fund. In addition, the combined OASI and DI Trust Funds would satisfy the test of short-range financial adequacy.

Table IV.A3.—Operations of the Combined OASI and DI Trust Funds,Calendar Years 2014-2028a